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Top Legal Issues with Pop-Up Shops

So-called “pop-up shops” are now a common feature of the retail landscape. We as consumers see them everywhere, from small kiosks within larger brick and mortar stores during the holidays, to suddenly-filled vacant lots for pumpkins and trees, to portions of parking lots during the spring for garden enthusiasts. What was once reserved for seasonal goods has become a staple for luxury brands in trendy shopping centers and neighborhoods. Forbes Magazine calls this the “uberization of retail.” See story here.

Aside from a method of reaching customers, pop-ups have become a marketing product or service launch tool coupled with social media and influencers. Pop-ups are supposed to be “fun” and “interesting,” but there are still a host of legal issues that must be navigated if your San Diego business is considering the idea. Here are a few of the top issues:

The Business License and the Seller’s Permit

Like any sort of retail establishment, a pop-up store must comply with local permits and regulations, including having a business license. Likewise, sales tax must be collected, so your pop-up shop will need a seller’s permit from the State of California, Department of Equalization. Both of these may be “easy” if your business already has a business license and a seller’s permit. Otherwise, you will need these in place before proceeding. Timing is an issue here since it takes some time for processing and approval. So, if you are planning a holiday-season pop-up, make sure you are applying for your business licenses and seller’s permit no later than the summer.

Set Up a Corporate Entity and Get Insurance

The purpose of a pop-up shop is to make a profit. Part of making a profit is avoiding downside risks like a slip-and-fall accident or products liability lawsuit. Suppose your pop-up shop-on-wheels gets loose, rolls down the hill and crashes? Without insurance, you are paying for the damage from your profits and, potentially, your other personal assets. Insurance will help avoid that and, likewise, a corporate entity will shield your personal assets from being seized to pay for the damage. A good San Diego corporate attorney can help with incorporation. In practice, your business license, seller’s permit, and insurance will be obtained by the corporate entity, so putting the business entity in place first will save a lot of duplicated effort and possible liability issues.

Negotiate the Lease

When it comes to negotiating the lease, there are several key issues. First, rent may be a flat amount, but it could also be based on a percentage of sales revenue. If based upon sales revenue, close attention should be paid to the method of calculating “sales.” A clause that bases rent on “gross sales” can arguably capture all sales including online sales that can be traced to the pop-up store and including sales that occur/occurred before and after the physical location closed. Second, pay close attention to hours of operation and various landlord-provided services such as utilities, HVAC, and similar. If your pop-up shop will need heat or air conditioning, for example, make sure it is available and will be provided when needed and in sufficient quantities. Third, be cautious with post-termination ongoing obligations such as indemnity and hold-harmless provisions. Fourth, scrutinize provisions with respect to altering the space. Can you paint the walls, for example, and what about any requirement to return the walls to their original color(s)? Fifth, avoid personal guaranty clauses if you can. There are many other issues to consider. Even for a small endeavor like a pop-up store, it is important to retain a good San Diego corporate attorney to review the lease before signing it.

Call San Diego Corporate Law Today

If you need legal advice relating to setting up a pop-up shop, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses including incorporation services and lease/contract drafting and review. Mr. Leonard can be reached at (858) 483-9200 or via email.

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Michael J. Leonard, Esq., is an award winning attorney whose practice focuses on corporate, securities, contract, and intellectual property law for small and medium businesses. In his practice, Mr. Leonard routinely assists his clients with the formation of business entities, financing through the sale of debt and equity securities, mergers and acquisitions, contract drafting and review including commercial leases, and establishment and licensing of trademarks, copyrights, and trade secrets.